Personal loans can be a mouthful especially if you get lucky enough and land a huge amount in your bank account that you don’t really know what to do with. Many times, you find many people end up misusing these loans and then end up being stranded and go back to the same state they were in. only that this time, they also have a loan to pay as well.
If you plan yourself and budget everything accordingly, you can benefit a great deal from personal loans and that is exactly what should always be the case but isn’t. The issue then comes in as to how you are going to spend the personal loan. Will it help you or add to your problems? All that depends on you.
This article has compiled a list of five amazing tips and tricks you can apply to ensure you spend your personal loan effectively.
1. Good uses for personal loans
If you plan and strategize yourself financially and responsibly, you can benefit a lot from personal loans. There are many good reasons you may need to take a personal loan or debt to advance yourself financially. Some of them include;
- Education expenses.
- Debt consolidation.
- Purchasing a home.
Taking a personal loan for any appreciating asset is always a good investment and a good use of debt. Take, for example, taking a student loan which will help increase your future earning power. Maybe even a mortgage loan which allows you to get and own a home. These are all good reasons to get a personal loan.
2. Bad uses for personal loans
It is always a good idea to exercise caution whenever you are using a personal loan. Don’t use your personal loan on;
- Lavish wedding or
- Consumer goods.
In other words, don’t use a personal loan to increase your spending on any unnecessary expenses. You should also consider that most of these expenses and spendings like vacations and expensive weddings are all material goods that only usually last for a short period. Then you have to start worrying about how you can pay off the debts which will last for years. You will literally be sacrificing any chance you have of saving or retirement investments. You will be putting your financial future at risks for no good reason.
3. Factors to consider as you take a personal loan
You need to be aware of the fact that most personal loans are signature loans or unsecured. Meaning they neither require collateral or security deposits to be acquired. This also means that the risks are greater for the lender which is the reason for the high-interest rates compared to the secured loans. The interest rates will also be higher if you have a poor credit record. Apart from whether the loan is secured or unsecured, you should also consider these factors as well;
- The lender – vet the lender.
- Terms – read through the terms and conditions and see whether they fit your criteria.
- Fees – some lenders even offer no-fee loans.
- Interest rates – check the interest rates and apply for the personal loan with the company you think offers the best rates for your loan.
4. Alternatives to a personal loan
It always a good idea to ensure you have exhausted all of the other options where you can get capital before you opt for a personal loan. You can try your friends and family members, the 401(k) loan or even the low- or no-interest credit cards for loans. Only opt for the personal loans if you have failed in all of these other options.
5. Be selective about using personal loans
Personal loans can help you a great deal with your financial situations provided you use it wisely and economically. You can use your personal loan to;
- Make payments and invest on thither things within your budget.
- Reduce your total loan debts and interest rates.
- Alleviate potential disasters like not being able to pay your tax bills.
All these points are good reasons to go for a personal loan.